Manhattan Office Market Cools With Tenants Hesitating on Deals

Manhattan’s office market cooled in the first quarter as financial turmoil limited leasing deals, while landlords put more space up for rent than tenants took.

Leasing totaled 6.6 million square feet (613,000 square meters), down from 7 million square feet a year earlier, according to data from brokerage Cushman & Wakefield Inc. About 806,000 more square feet of offices entered the market than were leased, the first time since the third quarter of 2013 for what’s known as negative absorption.

“There was not a high volume of large deals,” said Richard Persichetti, Cushman’s Northeast research director. “The year started slow because of reservations about what was going on in the stock market. Corrections in the stock market also led to some price corrections in the real estate market -- that whole snowball effect, so to speak.”

Office leasing in Manhattan is slowing from the aggressive pace of the past two years. For all of 2014, rental agreements were signed for 32.8 million square feet, the most since 1998, Cushman data show. Traditional Midtown, the biggest and costliest U.S. office market, faces a jump in large vacancies as companies fan out across the city, including to towers downtown and at the Hudson Yards development on the far west side.

Other tenants may have followed a cue from 21st Century Fox Inc. and News Corp., which in January backed out of a deal to anchor a new skyscraper at the World Trade Center, choosing instead to stay at their headquarters on Avenue of the Americas in Midtown.

Healthy Market

While office demand has slipped, the market remains healthy, Persichetti said. The amount of space leased in the first quarter was more than the 14-year historical average of 6.2 million square feet for the period, Cushman data show.

Resilient economic fundamentals for the city, especially job growth, signal more robust leasing the rest of the year, Persichetti said. Also, there are more companies in the market for large spaces of at least 100,000 square feet. Forty-seven firms in the financial, technology, creative and professional-services industries are seeking offices of that size, up from about 30 at this time last year, he said.

“Just because deals did not get signed doesn’t mean that the rest of the year will follow that pattern,” Persichetti said. “If there were huge economic news or a forecast of a slowdown, we might be having a different conversation. But the economy remains strong.”